Using RRSPs to Finance a Home
Canada Customs and Revenue Agency offers a special tax
shelter to Canadian homebuyers. The Homebuyers' Plan (HBP)
allows you to withdraw up to $20,000 from your registered
retirement savings plans (RRSPs) to buy or build your home.
Your spouse can also withdraw up to $20,000, making the
total amount $40,000.
The amount is not included in your taxable income for that
year. You must repay the amount within 15 years, usually in
annual installments.
For more information about this program, download below a
15-page government guide.
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You can also download the government form entitled:
"T1036 Home Buyers' Plan (HBP) Request to Withdraw Funds
from an RRSP - withdrawals made after December 31, 2001".
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Burlington Post Article
Here is a short article that was published in the Burlington Post on May 23, 2003 about this government program:For many Canadians, contributing to an RRSP is an important part of planning for retirement. However, as part of your overall financial plan, your RRSP savings can help you reach other important goals along your way to retirement.
For example, investment in your RRSPs can help you invest in your first home by providing you with funds for your downpayment. Saving for a downpayment used to be the biggest barrier between first-time buyers and their new home, but not anymore.
Under the RRSP Home Buyer’s Plan, if you’re a first-time buyer, you and your spouse may each be able to withdraw up to $20,000 tax-free from your RRSP and use it for the downpayment.
Provided that you meet the conditions for participating in the Home Buyers’ Plan, there are no tax penalties due to a withdrawal from your RRSP, and you can take up to 15 years to pay back into your RRSP in annual installments.
The catch is that you and your spouse must each be a first-time homebuyer. You are considered to be a first-time homebuyer if you have not owned a principal residence in the five calendar years prior to the withdrawal.
To participate in the Home Buyer’s Plan, you must have entered into an agreement to purchase or construct a home which is in Canada, was acquired not more than 30 days before receiving the withdrawl under the RRSP Home Buyer’s Plan and is intended to be occupied by you as your principal residence within one year of buying or building.
An important point to remember is that to avoid any tax penalties, you must pay back the amount you withdraw for a downpayment over the 15-year period.
You are expected to pay back 1/15 of the funds withdrawn each year. If you choose to repay less than your scheduled annual payment, the amount you do not repay must be reported as income on your tax
return for that year.
It is important to understand the basics before considering this tool for your retirement plan. To better understand if the RRSP Home Buyer’s Plan is appropriate for you and how it may fit in your retirement plan, talk to a financial planner.
